Mumbai: The Bombay high court pulled up the committee overseeing National Spot Exchange Ltd (NSEL) investor claims after it observed a conflict of interest in the panel’s functioning.

In April 2014, the court had formed a three-member panel headed by justice V.C. Daga to reconcile the claims of 13,000 investors who lost money in the Rs5,574.35-crore payments crisis at NSEL. The panel included solicitor J.S. Solomon and chartered accountant Yogesh Thar.

The Daga committee passed an order in August 2014 to NSEL not to disburse any funds to investors without the consent of the court. Subsequently, in April 2016, the committee had recommended an audit of the records of the exchange, its investors and trading members after it came across discrepancies in the figures submitted by them.

Justice J.S. Patel, in an order that was uploaded on the Bombay high court website on 13 April, said that there was a conflict of interest in hiring the auditor.

One of the Daga committee members is also a partner at the firm that was hired to conduct the audit of NSEL investors and its trading members. “And there lies the starkest conflict,” said the order.

Justice Patel also expressed reservations over the terms of reference given to the auditors, which included an audit of “accounts, bank accounts, income-tax returns and relevant documents” of investors.

“Certainly, income-tax documents are not the kind of material that should readily be allowed to be summoned in this manner or with this background by a sub-consultant appointed at the instance of the committee,” he said.

The order said that the details being referred to in the audit report are private and confidential, and added that the committee should adopt a more “granular approach”.

“An invasive trawl through a person’s annual financial returns or tax returns may not be necessary where there are few identified transactions that are found to be discrepant,” said the order.

In January, the panel submitted its report to the high court in which it has verified claims of 11,000 investors.

The order said that NSEL, which was helping in reconciliation of the investors’ claims, “is not a nodal statutorily-empowered agency for detection, recovery and distribution”.

“It is a defendant in a set of civil suits, and against it are even now the most serious allegations that it must address in those civil proceedings,” said the judge.

Prakash Chaturvedi, chief executive officer of NSEL, said that the exchange had received a copy of the order and was examining it.

The order also recommended that the committee consider an appslication for a forensic audit filed by NSEL investors in 2014.

“I find it difficult to conceive of a more appropriate time when these applications need to be decided. A simple question that arises to an application such as the one made by L.J. Tanna (an NSEL investor) is: ‘If not now, when?’” said the order.

It’s been almost four years since trading on NSEL was halted in July 2013 after a settlement crisis at the commodities bourse snowballed into a payments crisis.